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Senate delays bill allowing online sales taxes

Stephen Ohlemacher, The Associated Press
7:39 p.m. EDT April 26, 2013

Handful of senators from states without sales taxes hold up bill until at least May 6.

Internet retailer Amazon spent about a decade fighting the collection of state sales taxes for online sales. The company has now switched sides, leaving eBay to lobby against the bill, called the Marketplace Fairness Act.(Photo: Paul Sakuma, AP)

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Although opponents hope senators will hear from angry constituents in the next week, they have a steep hill to climb to defeat the bill, dubbed the Marketplace Fairness Act, in the Senate.

The Senate voted 63-30 Thursday to end debate on the bill, setting up a final Senate vote to pass the bill May 6. The final vote will require only a majority to pass the bill, so 14 supporters would have to flip to stop it.

President Barack Obama supports the bill, but it faces an uncertain fate in the House where some Republicans consider it a tax increase.

The bill would empower states to require online retailers to collect state and local sales taxes for purchases made online. The bill would require the sales taxes to be sent to the state where a shopper lives.

States now can require stores to collect sales taxes only if the store has a physical presence in the state, such as a store or warehouse. As a result, many online sales are essentially tax free, giving Internet retailers an advantage over brick-and-mortar stores.

Retailers who have lobbied in favor of the bill celebrated Thursday's vote.

"The special treatment of big online businesses at the expense of retailers on Main Street will soon be a thing of the past," said Bill Hughes of the Retail Industry Leaders Association. "The overwhelmingly bipartisan support for leveling the playing field is rare in today's political environment and paves the way for a level playing field once and for all."

A handful of senators from states without sales taxes opposed the bill, with Sen. Ron Wyden, D-Ore., leading the fight against it. Delaware, Montana, New Hampshire and Oregon have no sales taxes though the two senators from Delaware support the bill.

"It's coercive. It requires a number of states to collect the taxes of other states thousands of miles away against their will," Wyden said in an interview. "It's discrimination because this forces some people online to carry out responsibilities that brick and mortar retailers do not have to do."

Wyden said the bill also gives an advantage to foreign retailers. Supporters say the bill treats foreign retailers the same as domestic ones, but opponents question the ability of states to enforce state tax laws on companies based in other countries.

Supporters say the bill is about fairness for local businesses that already collect sales taxes and lost revenue for states.

Opponents say the bill would impose complicated regulations on retailers and doesn't have enough protections for small businesses. Businesses with less than $1 million a year in online sales would be exempt.

“It's coercive. It requires a number of states to collect the taxes of other states thousands of miles away against their will.”

Sen. Ron Wyden, D-Ore., who is fighting the bill

Many of the nation's governors — Republicans and Democrats — have been lobbying the federal government for years for the authority to collect sales taxes from online sales.

The issue is getting bigger for states as more people make purchases online. Last year, Internet sales in the United States totaled $226 billion, up nearly 16% from the previous year, according to Commerce Department estimates.

The National Conference of State Legislatures estimates that states lost $23 billion last year because they couldn't collect taxes on out-of-state sales.

The bill pits brick-and-mortar stores like WalMart against online services such as eBay. The National Retail federation supports it. And Amazon.com, which initially fought efforts in some states to make it collect sales taxes, now supports it, too.

The bill also gets support from many Republicans who have pledged not to increase taxes. The bill's main sponsor is Sen. Mike Enzi, a conservative Republican from Wyoming. He is working closely with Sen. Dick Durbin, a liberal Democrat from Illinois.

Enzi and Durbin say the bill doesn't raise taxes. Instead, they say it gives states a mechanism to enforce current taxes.

In many states, shoppers are required to pay unpaid sales taxes when they file state tax returns. But governors complain that few people comply.

Sen. Chris Coons, D-Del., said he supports the bill in part because tax-free Internet sales are eating into Delaware retailers' sales.

"In our region, we've long benefited from significant commercial sales from residents of Maryland, of New Jersey, Pennsylvania and elsewhere, who come to Delaware to shop because we're a tax-free state," Coons said. "Over time, the benefit of that has eroded as folks discovered that they could buy the same things online without paying sales tax from home."

He noted that the bill would not require anyone from Delaware to pay sales taxes.